What are a landlord’s tenancy deposit protection obligations?

It is 10 years since the introduction of tenancy deposit schemes. Darren Higginson of the Personal Disputes team at Coodes Solicitors outlines a landlord’s tenancy deposit protection obligations.

Tenancy Deposit Schemes were introduced in England and Wales in 2007. The legislation means that a landlord must place his or her tenants’ deposit in a tenancy deposit protection scheme for a home rented out on an assured shorthold tenancy that started after 6 April 2007.

Most agreements between a landlord and tenant come in the form of an Assured Shorthold Tenancy. When a landlord takes a deposit under a new Assured Shorthold Tenancy it must be protected in one of the authorised schemes within 30 days of receipt. These schemes are designed to ensure tenants get their deposit back if they meet the terms of the tenancy and to assist the parties to resolve any disputes about whether the landlord is entitled to retain any part of the deposit .

How do I set up a tenancy deposit scheme?

A landlord should go to one of the three organisations running Government-backed tenancy deposit schemes:

1. The Deposit Protection Service (Custodial and Insurance schemes)
2. Tenancy Deposit Scheme (Insurance scheme only)
3. MyDeposits (Insurance scheme only)

What is the difference between a custodial and insurance deposit?

There are two different types of tenancy deposit scheme: custodial and insurance. It is for the landlord to decide which to use.

Under a custodial scheme the deposit is paid to the scheme administrator, who holds it until the end of the tenancy.

Under an insurance scheme the landlord holds the deposit and pays an administration fee and an insurance premium so that the deposit can be repaid to the tenant if the landlord misappropriates the money.

What information do I need to provide to my tenant when I take a deposit?

Within 30 days of taking a deposit, you must provide certain prescribed information to the tenant and to anyone who paid the deposit on their behalf.

The prescribed information that has to be given to the tenant when a deposit is taken is listed here in The Housing (Tenancy Deposits) (Prescribed Information) Order 2007. It includes things like the amount of the deposit, the address of the property, the landlord’s and tenant’s contact details, the contact details of the tenancy deposit scheme administrator and procedures that apply at the end of the tenancy.

What happens if I do not protect a deposit within 30 days?

A landlord who fails to protect a deposit and/or fails to provide the prescribed information within the 30 day time limit is likely to face sanctions. Importantly, it will be much more difficult to recover possession of the property.

Firstly, if the deposit was not protected in time, the landlord will be unable to serve a section 21 notice to recover possession of the property until the deposit has been returned to the tenant in full (or with agreed deductions), or until any claim relating to the deposit has been determined, settled or withdrawn.

It is a common misconception that protecting the deposit late allows a section 21 notice to be served. This is not correct. After the initial 30 day period for protecting the deposit has passed the deposit must be returned to the tenant before a section 21 notice can be served, even if the deposit was protected later. There is some uncertainty as to whether simply sending a cheque to the tenant for the deposit is enough if the cheque is returned by the tenant or simply not banked. Transferring funds directly into the tenant’s bank account is the best approach but if this is not possible then it may be appropriate to hand cash to the tenant and obtain a receipt.

Secondly, if the deposit was protected within 30 days of receipt but the prescribed information was not given to the tenant within that same period the landlord will be unable to serve a section 21 notice until the prescribed information is given.

If the deposit was not protected and/or the prescribed information was not given it may still be possible to recover possession of the property by serving a section 8 Notice instead.

The tenant also has the right to commence court action against the landlord for an order that the deposit is returned to them, or to the person who originally paid it, or for it to be paid into a custodial scheme within 14 days. If the court makes such an order then it must also order that an additional sum between one and three times the amount of the deposit be paid to the tenant, or to the person who originally paid the deposit, within the same 14 day period.

These penalties apply even if the deposit was protected and/or the prescribed information was given to the tenant at a later date.

This is a complex area of law, particularly in relation to older tenancies. If you are in any doubt as to your rights and obligations you should seek legal advice.

For advice on these issues, please contact Darren Higginson at Coodes Solicitors on 01726 874700 or darren.higginson@coodes.co.uk